def_14a.htm

General. The 2004 Non-Employee Director Stock Option Plan was adopted by the Board of Directors on September 20, 2004 and approved by the stockholders on January 21, 2005 (the “Director Plan”). This plan allows for options to be issued to directors to purchase up to 350,000 shares of Class A Common Stock. On January 31, 2006, the Director Plan was amended, by the shareholders vote, to increase the annual grant of options under the Director Plan from 10,000 per non-employee director to 20,000 per non-employee director. On September 29, 2010 the Board of Directors approved the amendment to the Director Plan to increase the number of shares of Class A Common Stock available under the plan from 350,000 to 950,000 pending stockholder approval.< /div>

The Board of Directors or a committee of the Board administers the Director Plan. Under the Director Plan, at each annual meeting of the Board of Directors of the Company, each non-employee director of the Company, is granted an option to purchase 20,000 shares of the Class A Common Stock of the Company. The option exercise price is the fair market value of the shares of the Company's Class A Common Stock on the date of the grant. The options are non-transferable and become exercisable as follows: 25% immediately and 25% on each of the first, second and third anniversaries of the grant date. If an optionee ceases to be a member of the Board of Directors for a reason other than death or permanent disability, the unexercised portion of the options, to the extent unvested, immediately terminate, and the unexercised portion of the options which have vested lapse 180 days after the date the optionee ceases to serve on the Board. In the event of death or permanent disability, all unexercised options vest and the optionee or his or her legal representative has the right to exercise the option for a period of 180 days or until the expiration of the option, if sooner.

The Company’s current Non-Employee directors who are eligible to receive awards under the Director Plan are Donald E. Robar, William F. Grieco, David E. Dangerfield and Douglas J. Smith.

Non-Employee Stock Option Plan Federal Income Tax Information. Set forth below is a general summary of the federal income tax consequences to the Company and to recipients who receive options or restricted stock under the Director Plan. The following summary is not intended to be exhaustive, does not address certain special federal tax provisions, and does not address state, municipal or foreign tax laws.

Under Section 83 of the Code, optionees realize no taxable income when a non-qualified stock option ("NSO") is granted. Instead, the difference between the fair market value of the stock and the option price paid is taxed as ordinary compensation income, on or after the date on which the option is exercised. The difference is measured and taxed as of the date of exercise if the stock is not subject at that time to a "substantial risk of forfeiture," as defined in Section 83. To the extent that the stock is subject to a substantial risk of forfeiture, the difference is measured as of the date or dates on which the risk terminates. The Director Plan permits the Compensation Committee to impose repurchase rights on stock acquired upon exercise of options that would constitute such a "substantial risk of forfeiture.” If s uch repurchase

rights are imposed, the optionee would recognize taxable income and incur a tax liability, and the optionee's holding period for tax purposes would commence, in the year or years that the substantial risk of forfeiture terminates with respect to the stock.

Alternatively, an optionee holding an NSO may elect, within thirty days after the option is exercised, in accordance with Section 83(b), to be taxed on the difference between the option exercise price and the fair market value of the stock on the date of exercise even though the stock acquired is subject to a substantial risk of forfeiture. If the optionee makes this election, subsequent changes in the value of the Common Stock at the time the forfeiture provisions lapse will not result in ordinary compensation income to the optionee.

The Company receives no tax deduction on the grant of an NSO, but is entitled to a tax deduction when the optionee recognizes taxable income on or after exercise of the option, in the same amount as the income recognized by the optionee.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE

AMENDMENT TO THE 2004 NON-EMPLOYEE

DIRECTOR STOCK OPTION PLAN

PROPOSAL 3

AMENDMENT TO THE 2003 STOCK PURCHASE AND OPTION PLAN

On September 29, 2010, the Board of Directors of the Company adopted an amendment to the 2003 Stock Purchase and Option Plan (the "Stock Plan") to increase the maximum number of shares of Common Stock available for issuance under the plan from 1,900,000 to 2,400,000 shares. The purpose of the increase is to permit the continuing grant of stock options to employees, officers, directors and consultants, which the Board of Directors believes is necessary to continue to attract and retain such persons, particularly in view of the fact that the Company’s business is dependent upon its human resources. The executive officers and directors of the Company are eligible to receive options and restricted stock under the Stock Plan and will therefore benefit from such approval. The Company plans to register the additional shares to be issued under the Stock Plan on Form S-8 to be filed by the Company under the Securities Act of 1933.

Description of the Company's 2003 Stock Plan

General. The Company’s Stock Plan, originally adopted by the Board of Directors in 2003 and approved by stockholders in 2003 and amended October 16, 2007, currently authorizes the grant of options to purchase a maximum of 1,900,000 shares of Class A Common Stock, subject to adjustment for stock splits and similar capital changes.

The Board of Directors administers the Stock Plan. Under the Stock Plan, the Board of Directors has the authority to select the recipients of options or restricted stock and determine the terms of the options or restricted stock granted, including: (i) the number of shares; (ii) option exercise terms; (iii) the exercise or purchase price (which in the case of an incentive stock option cannot be less than the fair market value of the Class A Common Stock on the date of grant); (iv) the type and duration of transfer or other restrictions; and (v) the time and form of payment for restricted stock and upon exercise of options. There are no restrictions on the eligibility of recipients of options under this plan. Generally, an option is not transferable by the option hold er except by will or by the laws of descent and distribution. Also, generally, no incentive stock option may be exercised more than 60 days following termination of employment. In the event that termination is due to death or disability, however, the option is exercisable for a period of one year following such termination. Options granted to date generally become exercisable in four equal installments over a three-year period, at the time of grant and on the first, second and third anniversaries of the grant date and expire on the fifth anniversary of the grant date.

Awards under the 2003 Stock Plan are subject to the discretion of the Board of Directors, and therefore, it is not possible to identify the persons who will receive options or other awards under the 2003 Stock Plan in the future, nor the amount of any such future awards.

Stock Purchase and Option Plan Federal Income Tax Information. Set forth below is a general summary of the federal income tax consequences to the Company and to recipients who receive options or restricted stock under the Stock Plan. The following summary is not intended to be exhaustive, does not address certain special federal tax provisions, and does not address state, municipal or foreign tax laws.

Tax Treatment of Non-Qualified Stock Options. Under Section 83 of the Internal Revenue Code, optionees realize no taxable income when a non-qualified stock option ("NSO") is granted. Instead, the difference between the fair market value of the stock and the option price paid is taxed as ordinary compensation income, on or after the date on which the option is exercised. The difference is measured and taxed as of the date of exercise if the stock is not subject at that time to a "substantial risk of forfeiture," as defined in Section 83. To the extent that the stock is subject to a substantial risk of forfeiture, the difference is measured as of the date or dates on which the risk terminates. The Stock Plan permits the Compensation Committee to impose repurchase rights on stock acquired upon exercise of options that would constitute such a "substantial risk of forfeiture." If such repurchase rights are imposed, the optionee would recognize taxable income and incur a tax liability, and the optionee's holding period for tax purposes

would commence, in the year or years that the substantial risk of forfeiture terminates with respect to the stock.

Tax Treatment of Incentive Stock Options. Under Section 422 of the Internal Revenue Code, an optionee incurs no federal income tax liability on either the grant or exercise of an incentive stock option ("ISO"). Provided that the stock is held for at least one year after the date of exercise of the option and at least two years after its date of grant, any gain realized on the subsequent sale of stock will be taxed as long-term or short-term capital gain depending on the holding period since the date of exercise. If the stock is disposed of within a shorter period, the optionee will be taxed, with respect to the gain realized, as if he or she had then received ordinary compensation income in an amount equal to the difference between the fair market value of the stock on the date of exercise of the option and its fair market value on the date on which the option was granted. The balance of the gain realized will be taxed as capital gain, long-term or short-term depending on the holding period since the date of exercise.

The Company receives no tax deduction on the grant or exercise of an ISO, but is entitled to a tax deduction if the optionee recognizes ordinary compensation income on account of a premature disposition of ISO stock in the same amount and at the same time as the optionee's recognition of income.

Tax Treatment of Purchases of Restricted Stock. An employee or consultant who receives a grant of restricted stock generally will not recognize taxable income at the time such stock is received, but will recognize ordinary compensation income when the transfer and forfeiture restrictions lapse in an amount equal to the excess of the aggregate fair market value, as of the date the restrictions lapse, over the amount, if any, paid by the employee or consultant for the restricted stock. Alternatively, an employee or consultant receiving restricted stock may elect, in accordance with Section 83(b) of the Code, to be taxed on the excess of the fair market value of the shares of restricted stock at the time of grant over the amount, if any, paid by the employee or consultant, notwithstanding the transfer and forfeiture restrictions on the stock. All such taxable amounts are deductible by the Company at the time and in the amount of the ordinary compensation income recognized by the employee or consultant. The full amount of dividends or other distributions of property made with respect to restricted stock prior to the lapse of the transfer and forfeiture restrictions will constitute ordinary compensation income to the employee or consultant and the Company will be entitled to a deduction at the same time and in the same amount.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR

THE AMENDMENT TO THE 2003 STOCK PURCHASE AND OPTION PLAN

PROPOSAL 4

RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board has selected the firm of BDO USA, LLP, independent registered public accountants, as auditors of the Company for the fiscal year ending June 30, 2011 and is submitting the selection to stockholders for ratification. The Board recommends a vote "FOR" this proposal. Unless the proxy indicates otherwise, the shares represented by the enclosed proxy will be voted to approve such selection.

Although there is no legal requirement that this matter be submitted to a vote of stockholders, the Board believes that the selection of our independent registered public accounting firm is of sufficient importance to seek stockholder ratification. In the event BDO USA, LLP is not ratified by the affirmative vote of the holders of shares representing a majority of the votes cast at the Annual Meeting, the Board may reconsider its selection. A representative of BDO USA, LLP is expected to be available for the Annual Meeting. Such representative will have an opportunity to make a statement and will be available to respond to appropriate questions from stockholders.

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FEES

The following table presents fees for professional audit services rendered for the Company’s annual financial statements and quarterly review services and other related services for the fiscal years ended June 30, 2010 and 2009:

		2010		2009
BDO USA, LLP
Audit fees:	$	394,908	$	342,585
Audit related fees:		--		5,000
Tax services*		30,000		15,000
All other fees		--		--
Total fees	$	424,908	$	362,585

* In addition to the above, firms other than the Company’s registered public accounting firm provide tax and other accounting services.

The amounts listed as “Audit fees” in the above table refers to fees directly related to the annual audit and quarterly review of financial statements and the amounts listed as “Audit related fees” refers to services such as the review of SEC comment letters.

The Company’s Audit Committee considered the non-audit services rendered by the Company’s independent registered public accounting firms during the two fiscal years presented and determined that such services were compatible with the firm’s independence.

BDO USA, LLP does not directly or indirectly, operate, or supervise the operation of, the Company’s information systems or manage the Company’s local area network, nor did they design or implement a hardware or software system that aggregates source data underlying the financial statements of the Company or generates information that is significant to the Company’s financial statements taken as a whole.

The charter of the Audit Committee provides that the Audit Committee must pre-approve all auditing and non-auditing services to be provided by the independent registered public accounting firm. In addition, any services exceeding pre-approved cost levels will require specific pre-approval by the Audit Committee. All services shown in the table above were pre-approved by the Audit Committee.

THE BOARD RECOMMENDS A VOTE FOR RATIFICATION OF THE ABOVE SELECTION

Compliance with Section 16(a) of the Exchange Act

Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s directors and executive officers, and persons who own more than 10% of the Company’s Common Stock, to file with the SEC reports of ownership and reports of changes in ownership of Common Stock. SEC rules also require the reporting persons and entities to furnish the Company with a copy of the reports they file. The Company is required to report any failure to file these reports.

Based on the review of the filings and written representations from the Company’s directors and executive officers, the Company believes that all reports required to be filed with the SEC by Section 16(a) during the most recent fiscal year were filed, however, each of the officers and directors below did not timely file a Form 4 relating to the expiration of stock options.

Bruce A. Shear

Howard Phillips

The expiration of the stock options were reported on the Form 5’s filed August 30, 2010.

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS AND DIRECTOR INDEPENDENCE

During the quarter ended March 31, 2009, the Company’s Board of Directors voted by unanimous written consent to allow short-term borrowing from related parties up to a maximum of $500,000, with an annual interest rate of 12% and a 2% origination fee. The Company utilized this funding during the March 31, 2009 quarter for a total of $275,000 as follows:

Related Party		Amount

Eric E. Shear	$	200,000
Stephen J. Shear		75,000

Both individuals are brothers of Bruce A. Shear, the Company’s CEO and President of the Board of Directors. This amount was paid in full in March 2009.

In addition, during the fiscal 2009, the Company repurchased shares from beneficial owners of the Company as shown below:

	Number of
Related Party	Shares		Amount

Camden Partners Limited Partnership,
Camden Partners II Limited Partnership
and Camden Partners Capital Management, LLC	146,024	$	235,098.64
First Quadrant Mercury, L.P.	53,976		86,901.36

Total	200,000	$	322,000.00

There were no related party transactions in the current fiscal year or through the date of this report.

Before entering into any contract or agreement involving a related party the Board of Directors reviews and approves the transaction. In the event one of the related parties is a member of the Board of Directors, that member of the Board recuses himself from participation in the discussion or approval of the transaction.

STOCKHOLDER PROPOSALS FOR 2011 MEETING

Proposals of stockholders intended to be presented and director nominations intended to be made at the 2011 Annual Meeting of Stockholders must be received by the Company at its principal office, 200 Lake Street, Suite 102, Peabody, Massachusetts 01960, Attention: Paula C. Wurts, Clerk, not later than June 30, 2011 for inclusion in the proxy statement for that meeting. Any proposal of a stockholder to be presented at the Company’s annual meeting of stockholders in 2010, which has not been included in the Company’s proxy material, must have been received not later than June 30, 2010 to be considered timely.

HOUSEHOLDING OF PROXY MATERIALS

The SEC has adopted rules that permit companies and intermediaries, such as brokers, to satisfy the delivery requirements for proxy statements and annual reports with respect to two or more stockholders sharing the same address by delivering a single Notice Regarding the Availability of Proxy Materials, proxy statement or annual report, as applicable addressed to those stockholders. This process, which is commonly referred to as “householding,” potentially means extra convenience for stockholders and cost savings for companies.

This year, some brokers with account holders who are Company stockholders may be “householding” our proxy materials, to the extent such stockholders have given their prior express or implied consent in accordance with SEC rules. A single Notice Regarding the Availability of Proxy Materials, proxy statement or annual report, as applicable, may be delivered to multiple stockholders sharing an address unless contrary instructions have been received from the affected stockholders. Once you have received notice from your broker that they will be “householding” communications to your address, “householding” will continue until you are notified otherwise or until you revoke your consent. If, at any time, you no longer wish to participate in householding and would prefer to receive a separate Notice Regardi ng the Availability of Proxy Materials, proxy statement or annual report, as applicable, please notify your broker to discontinue householding and direct your written request to receive a separate Notice Regarding the Availability of Proxy Materials, proxy statement or annual report, as applicable, to the Company at: PHC, Inc., Attention: Investor Relations, 200 Lake Street, Suite 102, Peabody, Massachusetts 01960, or by calling (978) 536-2777. Stockholders who currently receive multiple copies of the Notice of Internet Availability of Proxy Materials, proxy statement or annual report, as applicable, at their address and would like to request householding of their communications should contact their broker.

OTHER MATTERS

The Board does not know of any other matters that may come before the Annual Meeting. However, if any other matters are properly presented to the Annual Meeting, it is the intention of the persons named in the accompanying proxy to vote, or otherwise to act, in accordance with their judgment on such matters.

All costs of solicitation of proxies by management will be borne by the Company. In addition to solicitations by mail, the Company's directors, officers and regular employees, without additional remuneration, may solicit proxies by telephone or personal interviews. Brokers, custodians and fiduciaries will be requested to forward proxy soliciting materials to the beneficial owners of the Company's stock held in the names of such brokers, custodians and fiduciaries, and the Company will reimburse them for their out-of-pocket expenses in this connection.

By order of the Board of Directors

Paula C. Wurts, Clerk

October 27, 2010

The Board hopes that stockholders will attend the meeting. WHETHER OR NOT YOU PLAN TO ATTEND, YOU ARE URGED TO CAST YOUR VOTE AS INSTRUCTED IN THE NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS THAT YOU RECEIVED IN THE MAIL WITHOUT DELAY. A prompt response will greatly facilitate arrangements for the meeting, and your cooperation will be appreciated. Stockholders may revoke their proxy at any time prior to its exercise by delivering written notice or another duly executed proxy bearing a later date to the Clerk of the Company, by completing another proxy in the same manner indicated on the website referred to in the Notice Regarding the Availability of Proxy Materials or by attending the Annual Meeting and voting in person. If you hold shares in the name of a brokerage firm, bank, nomi nee or other institution, you must provide a legal proxy from that institution in order to vote your shares at the Annual Meeting, except as otherwise discussed in the Proxy Statement.

Appendix A

PHC, INC

2004 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN

(as amended)

1. Purpose. This 2004 Non-Employee Director Stock Option Plan (hereinafter, the "Plan") is intended to promote the interests of PHC, Inc., a Massachusetts corporation (the "Company"), by providing an inducement to obtain and retain the services of qualified persons who are not employees of the Company to serve as members of its Board of Directors (the "Board").

2. Available Shares. The total number of shares of Class A Common Stock, $.01 par value, of the Company (the "Class A Common Stock") for which options may be granted under the Plan shall not exceed 950,000 shares, subject to adjustment in accordance with Section 10 of the Plan. Shares subject to the Plan are authorized but unissued shares or shares that were once issued and subsequently reacquired by the Company. If any options granted under the Plan are surrendered before exercise or lapse without exercise, in whole or in part, the shares reserved therefore shall continue to be available under the Plan.

3. Administration. The Plan shall be administered by the Board or by a committee appointed by the Board (the "Committee"). In the event the Board fails to appoint or refrains from appointing a Committee, the Board shall have all power and authority to administer the Plan. In such event, the word "Committee" wherever used herein shall be deemed to mean the Board. The Committee shall, subject to the provisions of the Plan, have the power to construe the Plan, to determine all questions hereunder, and to adopt and amend such rules and regulations for the administration of the Plan as it may deem desirable. No member of the Board or the Committee shall be liable for any action or determination made in good faith with res pect to the Plan or any option granted under it.

4. Granting of Options.

During the term of the Plan and subject to the availability of shares under the Plan:

At the time of each annual meeting of the Board, beginning with the first such meeting following shareholder approval of the plan, during the term of this Plan, there shall be granted to each director who is not a current or former employee of the Company an option to purchase 20,000 shares of Class A Common Stock.

Except for the specific options referred to above, no other options shall be granted under the Plan.

5. Option Price. The purchase price of the stock covered by an option granted pursuant to the Plan shall be 100% of the fair market value of such shares on the day the option is granted. The option price will be subject to adjustment in accordance with the provisions of Section 10 of the Plan. For purposes of the Plan, if, at the time an option is granted under the Plan, the Company's Class A Common Stock is publicly traded, "fair market value" shall be determined as of the last business day for which the prices or quotes discussed in this sentence are available prior to the date such option is granted and shall mean (i) the average (on that date) of the high and low prices of the Class A Co mmon Stock on the principal national securities exchange on which the Class A Common Stock is traded, if the Class A Common Stock is then traded on a national securities exchange; (ii) the last reported sale price (on that date) of the Class A Common Stock on the Nasdaq National Market, if the Class A Common Stock is not then traded on a national securities exchange; or (iii) the closing bid price (or average of bid prices) last quoted (on that date) by an established quotation service for over-the-counter securities, if the Class A Common Stock is not reported on the Nasdaq National Market or on a national securities exchange. If, at the time an option is granted under the Plan, the Company's Class A Common Stock is not publicly traded, "fair market value" shall be as determined (i) by the mutual agreement of the optionee and the Company, or (ii) if such parties are unable to reach such agreement within 30 days after the grant of such option, by a reputable appraiser selected by the Company (the "Appraiser"). The Appraiser shall determine the fair market value without giving any consideration, premium or discount to the fact that the optionee may own more or less than a majority of the outstanding stock of the Company. The Appraiser shall determine the fair market value not later than 60 days after the grant of such option. The cost of the appraisal as determined by the Appraiser shall be borne by the Company.

6. Period of Option. Unless sooner terminated in accordance with the provisions of Section 8 of the Plan, an option granted hereunder shall expire on the date which is ten (10) years after the date of grant of the option.

7. Vesting of Shares and Non-transferability of Options.

(a) Vesting. Options granted under the Plan shall not be exercisable until they become vested. Options granted under the Plan shall vest in the optionee and thus become exercisable by the optionee as follows: 25% immediately and 25% on each of the first, second and third anniversary of the date of grant.

(b) Legend on Certificates. The certificates representing such shares shall carry such appropriate legend and such written instructions shall be given to the Company's transfer agent as may be deemed necessary or advisable by counsel to the Company in order to comply with the requirements of the Securities Act of 1933 or any state securities laws.

(c) Non-transferability. Any option granted pursuant to the Plan shall not be assignable or transferable other than by will or the laws of descent and distribution and shall be exercisable during the optionee's lifetime only by him or her.

8. Termination of Option Rights.

(a) In the event an optionee ceases to be a member of the Board for any reason other than death or permanent disability, any then unexercised portion of options granted to such optionee shall, to the extent not then vested, immediately terminate and become void; any portion of an option which is then vested but has not been exercised at the time the optionee so ceases to be a member of the Board may be exercised, to the extent it is then vested, by the optionee within 180 days of the date the optionee ceased to be a member of the Board, and all options shall terminate after the 180-day period has expired.

(b) In the event that an optionee ceases to be a member of the Board by reason of his or her death or permanent disability, any option granted to such optionee shall be immediately and automatically accelerated and become fully vested and all unexercised options shall be exercisable by the optionee (or by the optionee's personal representative, heir or legatee, in the event of death) until the earlier of the scheduled expiration date of the option or 180 days after the death or disability of the optionee.

9. Exercise of Option. Subject to the terms and conditions of the Plan and the option agreements, an option granted hereunder shall, to the extent then exercisable, be exercisable in whole or in part by giving written notice to the Company at its principal office address, stating the number of shares with respect to which the option is being exercised, accompanied by payment in full for such shares. Payment may be (a) in United States dollars in cash or by check, (b) in whole or in part in shares of Class A Common Stock of the Company already owned by the person or persons exercising the option or shares subject to the option being exercised (subject to such restrictions and guidelines as the Board may adopt from time to time), valued at fair market value determined in accordance with the provisions of Section 5 or (c) consistent with applicable law, through the delivery of an assignment to the Company of a sufficient amount of the proceeds from the sale of the Class A Common Stock acquired upon exercise of the option and an authorization to the broker or selling agent to pay that amount to the Company, which sale shall be at the participant's direction at the time of exercise. There shall be no such exercise at any one time as to fewer than one hundred (100) shares or all of the remaining shares then purchasable by the person or persons exercising the option, if fewer than one hundred (100) shares. The Company's transfer agent shall, on behalf of the Company, prepare a certificate or certificates representing such shares acquired pursuant to exercise of the option, shall register the optionee as the owner of such shares on the books of the Company and shall cause the fully executed certificates(s) representing such shares to be delivered to the optionee as soon as practicable after payment of the option price in full. The holder of an option shall not have any rights of a stockholder with respect to the shares covered by the option except to the extent that one or more certificates for such shares shall be delivered to him or her upon the due exercise of the option.

10. Adjustments Upon Changes in Capitalization and Other Matters. Upon the occurrence of any of the following events, an optionee's rights with respect to options granted to him or her hereunder shall be adjusted as hereinafter provided:

(a) Stock Dividends. In the event the Company shall issue any of its shares as a stock dividend upon or with respect to the shares of stock of the class which shall at the time be subject to option hereunder, each optionee upon exercising an Option shall be entitled to receive (for the purchase price paid upon such exercise) the shares as to which he is exercising his Option and, in addition thereto (at no additional cost), such number of shares of the class or classes in which such stock dividend or dividends were declared or paid, and such amount of cash in lieu of fractional shares, as he would have received if he had been the holder of the shares as to which he is exercising his Option at all times between the date of grant of such Option and the date of its exercise.

(b) Merger; Consolidation; Liquidation; Sale of Assets. In the event the Company is merged into or consolidated with another corporation under circumstances where the Company is not the surviving corporation or if the Company is liquidated or sells or otherwise disposes of all or substantially all of its assets to another corporation while unexercised options remain outstanding under the Plan, after the effective date of such merger, consolidation or sale, as the case may be, each holder of an outstanding option shall be entitled, upon exercise of such option, to receive in lieu of shares of Class A Common Stock, shares of such stock or other securities as the holders of shares of Class A Common Stock received pursuant to the terms of the merger, consolidation or sale.

(c) Issuance of Securities. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares subject to options. No adjustments shall be made for dividends paid in cash or in property other than securities of the Company.

(d) No Fractional Shares. No fractional shares shall actually be issued under the Plan. Any fractional shares which, but for this subsection (d), would have been issued to an optionee pursuant to an Option, shall be deemed to have been issued and immediately sold to the Company for their fair market value, and the optionee shall receive from the Company cash in lieu of such fractional shares.

(e) Adjustments. Upon the happening of any of the foregoing events, the class and aggregate number of shares set forth in Section 2 of the Plan that are subject to options which previously have been or subsequently may be granted under the Plan shall also be appropriately adjusted to reflect such events. The Board shall determine the specific adjustments to be made under this Section 10 and its determination shall be conclusive.

11. Restrictions on Issuance of Shares. Notwithstanding the provisions of Sections 4 and 9 of the Plan, the Company shall have no obligation to deliver any certificate or certificates upon exercise of an option until one of the following conditions shall be satisfied:

(i) The shares with respect to which the option has been exercised are at the time of the issue of such shares effectively registered under applicable Federal and state securities laws as now in force or hereafter amended; or

(ii) Counsel for the Company shall have given an opinion that such shares are exempt from registration under Federal and state securities laws as now in force or hereafter amended; and the Company has complied with all applicable laws and regulations with respect thereto, including without limitation all regulations required by any stock exchange upon which the Company's outstanding Class A Common Stock is then listed.

12. Representation of Optionee. If requested by the Company, the optionee shall deliver to the Company written representations and warranties upon exercise of the option that are necessary to show compliance with Federal and state securities laws, including representations and warranties to the effect that a purchase of shares under the option is made for investment and not with a view to their distribution (as that term is used in the Securities Act of 1933).

13. Option Agreement. Each option granted under the provisions of the Plan shall be evidenced by an option agreement, which agreement shall be duly executed and delivered on behalf of the Company and by the optionee to whom such option is granted. The option agreement shall contain such terms, provisions and conditions not inconsistent with the Plan as may be determined by the officer executing it.

14. Term and Amendment of Plan. The Plan was adopted by the Board effective as of September 20, 2004, subject to approval by the stockholders of the Company. Options may not be granted under the Plan after September 20, 2014, and the Plan shall terminate when all options granted or to be granted hereunder are no longer outstanding. Subject to the provisions of Section 4 above, options may be granted under the Plan prior to the date of stockholder approval of the Plan. If the approval of stockholders is not obtained by December 31, 2005, any grants of options under the Plan made prior to that date will be rescinded. 0;The Board may at any time terminate the Plan or make such modification or amendment thereof as it deems advisable; provided, however, that the Board may not, without approval by the stockholders, (a) increase the maximum number of shares for which options may be granted under the Plan (except by adjustment pursuant to Section 11), (b) materially modify the requirements as to eligibility to participate in the Plan, (c) materially increase benefits accruing to option holders under the Plan or (d) amend the Plan in any manner which would cause Rule 16b-3 to become inapplicable to the Plan; and provided further that the provisions of the Plan specified in Rule 16b-3(c)(2)(ii)(A) (or any successor or amended provision thereof) under the Securities Exchange Act of 1934 (including without limitation, provisions as to eligibility, amount, price and timing of awards) may not be amended more than on ce every six months, other than to comport with changes in the Internal Revenue Code. Termination or any modification or amendment of the Plan shall not, without consent of a participant, affect his or her rights under an option previously granted to him or her. The plan was approved by the stockholders on January 20, 2005.

15. Compliance with Regulations. It is the Company's intent that the Plan comply in all respects with Rule 16b-3 under the Securities Exchange Act of 1934 (or any successor or amended version thereof) and any applicable Securities and Exchange Commission interpretations thereof. If any provision of the Plan is deemed not to be in compliance with Rule 16b-3, the provision shall be null and void.

16. Governing Law. The validity and construction of the Plan and the instruments evidencing options shall be governed by the laws of The Commonwealth of Massachusetts, without giving effect to the principles of conflicts of law thereof.

____________________________

The 2004 Non-Employee Director Plan was initially adopted by the Board of Directors of PHC, Inc. on September 20, 2004; approved by the stockholders on January 21, 2005; and, amended to increase the number of options granted annually to each director from 10,000 to 20,000 on December 20, 2005.

An amendment to increase the number of shares available under the plan from 350,000 to 950,000 is being presented to the stockholders of PHC, Inc. for approval at the December 16, 2010 annual stockholders meeting.

Appendix B

PHC, INC.

2003 STOCK PURCHASE AND OPTION PLAN (as amended)

1. Purpose

The purpose of this PHC, Inc. 2003 Stock Purchase and Option Plan (the “Plan”) is to provide for (i) the grant of incentive stock options, as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), to certain key employees of PHC, Inc. (the “Company”) and its subsidiaries, (ii) the grant of non-qualified stock options to certain employees (including leased employees), directors, consultants and others whose efforts are important to the success of the Company and its subsidiaries, and (iii) direct purchases of restricted stock in the Company (“Restricted Stock”) by certain employees (including leased employees), directors, and consultants of the Company and its subsidiaries. As used in this Plan, the term “subsidiary” shall mean a subsidiary corporation as defined in Section 424(F) of the code. All incentive stock options and non-qualified stock options which may be granted under this Plan are hereinafter referred to as “Options”.

2. Administration of Plan

This Plan shall be administered by the Board of Directors of the Company (the “Board”). The Board shall have the right, in its discretion, to delegate any and all of its powers hereunder to a Compensation Committee (the “Committee”) of two or more of its members. In the event the Company registers any class of any equity security pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), each member of the Committee shall be a “disinterested person” as defined in Rule 16b-3 under the Exchange Act. Subject to the terms of the Plan, the Committee, if so appointed, shall have the authority to interpret the Plan, to prescribe and rescind rules and regulations relating to it, and to make all other determinations necessary or advisable for its administration. In the event that the Board delegates its powers to a Committee to administer the Plan in whole or in part, the Committee’s determination with respect thereto shall not be subject to approval by the Board, and to the extent of such delegation, reference in this Plan to the Board shall be deemed to refer to the Committee.

3. Shares Covered by Plan

The stock subject to Options and Restricted Stock shall be authorized but unissued shares of Class A Common Stock, $.01 par value per share (“Common Stock”), of the Company, or shares of Common Stock re-acquired by the Company in any manner. The aggregate number of shares which may be issued pursuant to the Plan is 2,400,000, subject to adjustment as provided in Section 11. Any such shares may be issued as incentive stock options, non-qualified stock options or Restricted Stock as long as the aggregate number of shares so issued does not exceed such number, as adjusted. If any Option granted under the Plan shall expire or terminate for any reason without having been exercised in full or shall cease for any reason to be exercisable in whole or in part, the shares subject to such expired or terminated Option shall again be available for grants of Options or Restricted Stock under the Plan.

4. Eligibility

All employees, directors, consultants and others whose efforts are important to the success of the Company shall be eligible to receive Options and Restricted Stock under this Plan; provided, that incentive stock options may be granted only to employees of the Company or its subsidiaries.

5. Allotment of Options and Number of Shares

The allotment of Options among the eligible grantees, the number of shares to be covered by each Option to be granted, and the designation of Options as either incentive stock options or non-qualified stock options shall be determined by the Board.

6. Option Agreements; Terms of Options

Each grantee to who an Option is granted (an “Optionee”) shall enter into a written agreement with the Company setting forth the terms and conditions of the Option granted to him, which agreement may contain such terms, conditions and restrictions not inconsistent with the terms of the Plan as the Board shall approve in each case.

7. Option Price

The price to be paid by an Optionee who exercises an Option shall be determined by the Board but in the case of incentive stock options, except in the case of substituted options granted pursuant to Section 12, shall in no event be less than fair market value of the Common Stock on the date such Option is granted.

8. Duration and Rate of Exercise of Options

The option period shall be fixed by the Board but in any event each Option shall by its terms be exercisable no later than the expiration of ten years from the date such Option is granted.

The Board shall determine the rate at which each Option shall be exercisable.

The Board shall determine the manner in which each Option shall be exercisable and the timing and form of the purchase price to be paid by an Optionee upon exercise of an Option under the Plan. To the extent provided in the option agreement, payment of the purchase price may be in cash, part in cash and part by personal promissory note or in whole or in part by the surrender of a whole number of shares of previously issued Common Stock of the company. Previously issued shares of Common Stock shall be accepted as payment in an amount equal to the then fair market value of the surrendered shares.

9. Nontransferability of Options

Each Option granted under the Plan to any person shall by its terms not be transferable by him otherwise than by will or the laws of descent and distribution, and shall be exercisable during his lifetime only by him.

10. Rights as a Stockholder

An Optionee shall have no rights as a stockholder with respect to any shares covered by his Options until he shall have become the holder of record of such shares, and no adjustment shall be made, except adjustments pursuant to Section 11 hereof, for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions or other rights in respect of such shares for which the record dates is prior to the date on which he shall have become the holder of record thereof.

11. Effect of Change in Stock Subject to the Plan

If there is any change in the shares of Common Stock of the Company through the declaration of stock dividends or through recapitalizations resulting in stock split-ups or combinations or exchanges of shares or otherwise, the number of shares available for Options, the exercise price of outstanding Options, and the number of shares subject to any Option shall be appropriately adjusted by the Board, and in its discretion, in such cases, fractional parts of shares may be disregarded.

If the Company is merged into or consolidated with another corporation under circumstances where the Company is not the surviving corporation, or if the company is liquidated or sells or otherwise disposes of substantially all of its assets to another corporation while unexercised Options remain outstanding, (i) subject to the provisions of clauses (iii) and (iv) below, after the effective date of such merger, consolidation or sale, as the case may be, each holder of an outstanding Option shall be entitled, upon exercise of such Option, to receive in lieu of shares of Common Stock, shares of such stock or other securities as the holders of shares of Common Stock received pursuant to the terms of the merger, consolidation or sale; or (ii) the Board may waive any discretionary limitations imposed pursuant to section 8 hereof so that all options from and after a date prior to the effective date of such merger, consolidation, liquidation or sale, as the case may be, specified by the Board, shall be exercisable in full; or (iii) all outstanding Options may be cancelled by the Board as of the effective date of any such merger,

consolidation, liquidation or sale provided that the notice of such cancellation shall be given to each holder of an Option, and each holder of an Option shall have the right to exercise such Option in full (without regard to any discretionary limitations imposed pursuant to Section 8 hereof) during a 30-day period preceding the effective date of such merger, consolidation or sale; or (iv) all outstanding options may be cancelled by the Board as of the date of any such merger, consolidation, liquidation or sale provided that notice of such cancellation shall be given to each holder of an Option, and each holder of an Option shall have the right to exercise such Option but only to the extent exercisable in accordance with any discretionary limitations imposed pursuant to Section 8 prior to the effective date of such merger, consolidatio n, liquidation or sale.

12. Grant of Options in Connection With Certain Acquisitions

The Board may grant Options under the Plan in substitution for incentive stock options or non-qualified stock options granted under plans of other employers, if such grant occurs in connection with a corporate merger, consolidation, separation, reorganization, or liquidation to which the Company or any of its subsidiaries is a party, or by reason of the acquisition of property or stock of another corporation by the Company or any of its subsidiaries, provided that such transaction is a transaction to which Section 424(a) of the Code applies. The Board may impose such terms and conditions upon the grant of any incentive stock option under this Section 12 as are necessary to ensure that the substitution will qualify under Section 424(a) of the Code and will not constitute a modi fication of the Option under Section 424(h) of the Code, even though any such term or condition would otherwise be inconsistent with the provisions of this Plan. Options granted under the provisions of this Section 12 may be granted at a price less than the fair market value of the Common Stock on the date such Option is granted so long as the ratio of the option price to the fair market value of the common stock is no more favorable to the optionee than the ratio of the option price to the fair market value of the stock subject to the old option immediately before such substitution. Except as otherwise specifically provided in the agreement setting forth the terms and conditions of such an option, the provisions of this plan shall govern any options granted under this Section 12. Nothing in this Section 12 shall be deemed to authorize the grant of Options under the Plan for a number of shares in excess of the number set forth in Section 3 or to limit in any way the authority of the Board to grant substituted options in connection with such transactions other than under the Plan.

13. Restricted Stock

Each grant of Restricted Stock under the Plan shall be evidenced by an instrument (a “Restricted Stock Agreement”) in such form as the Board shall prescribe from time to time in accordance with the Plan and shall comply with such other terms and conditions as the Board, in its discretion, shall establish. The Board shall determine the number of shares of Common Stock to be issued to an eligible grantee pursuant to the grant of Restricted Stock and the extent to which payment of the purchase price may be made in cash, by personal promissory note, by other consideration, or by a combination thereof. To the extent payment of the purchase price is made by a personal promissory note, payment of the promissory note shall be secured by and entitled to the benef its of a first priority pledge of the shares of Restricted Stock to the extent that payment for such Restricted Stock is evidenced by such promissory note.

14. Use of Proceeds

The proceeds received by the Company from the sale of stock pursuant to the Plan may be used for general corporate purposes.

15. Amendment and Discontinuance

The Board may from time to time alter or suspend and at any time discontinue the Plan. However, no action of the Board may, without the approval of the stockholders, increase the maximum number of shares to be offered for sale under the Plan in the aggregate (other than according to the terms of Section 11 above), modify the provisions of Section 4 hereof regarding eligibility, reduce the purchase price at which shares may be offered pursuant to Options (other than according to the terms of Section 11), extend the expiration date of the Plan or otherwise materially increase the benefits to participants under the Plan; nor may any action of the Board or the stockholders alter or impair the rights of an Optionee or purchaser of Restricted Stock under any outstanding Option or sh are of Restricted Stock previously granted under the Plan, without the consent of the holder of the Option or Restricted Stock.

16. Withholding of Additional Income Taxes

The Company, in accordance with the Code, may, upon exercise of a non-qualified stock option or the purchase of common Stock for less than its fair market value or the lapse of restrictions on Restricted Stock or the making of a Disqualifying Disposition (as defined in Section 17 below) require the employee to pay additional withholding taxes in respect of the amount that is considered compensation includible in such person’s gross income.

17. Notice to Company of Disqualifying Disposition

Each employee who receives incentive stock options shall agree to notify the Company in writing immediately after the employee makes a disqualifying disposition of any Common Stock received pursuant to the exercise of an incentive stock option (a “Disqualifying Disposition”). Disqualifying Disposition means any disposition (including any sale) of such stock before the later of (a) two years after the employee was granted the incentive stock option under which he acquired such stock, or (b) one year after the employee acquired such stock by exercising such incentive stock option. If the employee had died before such stock is sold, these holding period requirements do not apply and no Disqualifying Disposition will thereafter occur.

18. Effective Date and Termination Date

The Plan and any amendment hereto requiring stockholder approval shall become effective upon the date of its adoption by the Board, subject, however to approval by the stockholders of the Company within twelve months of such date. The Plan shall remain in effect until terminated by the Board, but no later than ten years after the date the Plan is initially adopted by the Board, or is approved by the shareholders, whichever first occurs.

____________________________

The 2003 Stock Purchase and Option Plan was initially adopted by the Board of Directors of PHC, Inc. on September 22, 2003; approved by the stockholders on December 30, 2004; amended on December 19, 2007 to increase the number of shares available for issue under the plan from 1,300,000 to 1,900,000.

An amendment to further increase the number of shares available under the plan from 1,900,000 to 2,400,000 is being presented to the stockholders of PHC, Inc. for approval at the December 16, 2010 annual stockholders meeting.

REVOCABLE PROXY - CLASS A COMMON STOCK

PHC, INC.

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

2010 ANNUAL MEETING OF STOCKHOLDERS

The undersigned stockholder of PHC, Inc., a Massachusetts corporation, (the “Company”) hereby acknowledges receipt of the Notice of 2010 Annual Meeting of Stockholders and Annual Report on Form 10-K for fiscal year ended June 30, 2010 and hereby appoints Bruce A. Shear and Paula C. Wurts, and both of them, as proxies, with full power to each of substitution, and hereby authorizes either of them to represent and to vote, as designated on the reverse side, all the shares of Class A Common Stock of the Company held of record by the undersigned on October 18, 2010 at the Annual Meeting of Stockholders to be held at 2:00 p.m. (Boston time), on December 16, 2010 at the Corporate offices of PHC, Inc., 200 Lake Street, Suite 102, Peabody, Massachusetts 01960, and at any adjournments or postponements thereof. The undersigned stockholder hereby revokes any proxy or proxies heretofore given.

THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED, OR IF NO DIRECTION IS MADE, FOR SUCH PROPOSALS, AND IN ACCORDANCE WITH THE DETERMINATION OF THE PROXY HOLDERS AS TO OTHER MATTERS. THE UNDERSIGNED STOCKHOLDER HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF ANNUAL MEETING AND PROXY STATEMENT.

	Address Changes/Comments _______________________________________________________
	_______________________________________________________
	______________________________________________________________

(If you noted any Address Changes/Comments above, please mark corresponding box on the reverse side).

(Continued And To Be Signed And Dated On Reverse Side)

(BACK)

PHC, INC.

200 LAKE STREET

SUITE 102

PEABODY, MA 01960

VOTE BY INTERNET – WWW.PROXYVOTE.COM

Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form.

ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS

If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years.

VOTE BY PHONE – 1-800-690-6903

Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions.

VOTE BY MAIL

Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.

TO VOTE, mark blocks below in blue or black ink as follows: Example ■ KEEP THIS PORTION FOR YOUR RECORDS

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THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. DETACH AND RETURN THIS PORTION ONLY

PHC, INC.
FORM OF PROXY FOR CLASS A COMMON STOCK STOCKHOLDERS Vote on Directors	For	Withhold	For All
	All	All	Except	To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the Number(s) of the Nominee on the line below.

	□	□	□
1. To elect Donald E. Robar and Howard W. Phillips as the Class A Directors of the Company, each to hold the office until the next annual meeting following his election

				_________________________________________________
Nominees:
01) Donald E. Robar
02) Howard W. Phillips

Vote on Proposal
				FOR		AGAINST		ABSTAIN
2. To consider and vote upon a proposed amendment to increase the number of shares of Class A Common Stock available for issuance under the 2004 Non-Employee Director Stock Option Plan from 350,000 to 950,000 shares				□	□		□
3. To consider and vote upon a proposed amendment to increase the number of shares of Class A Common Stock available for issuance under the 2003 Stock Purchase and Option Plan from 1,900,000 to 2,400,000 shares				□	□		□
4. To ratify the selection by the Board of Directors of BDO USA, LLP as the Company’s independent registered public accounting firm for the 2011 fiscal year				□	□		□

In their discretion, the Proxies are authorized to vote upon such other matters as may properly come before the meeting or any adjournment or postponement thereof.

PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD USING THE ENCLOSED ENVELOPE.

Please indicate if you plan to attend this meeting □ □

Yes No

For address changes and/or comments, please check this box and □

write them on the back where indicated

(NOTE: Please sign exactly as your name(s) appear(s) hereon. All holders must sign. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. If a corporation, please sign in full corporate name by authorized officer. If a partnership, please sign in partnership name by authorized person.)

_____________________	_____		____________________	_____
Signature (PLEASE SIGN WITHIN BOX)	Date		Signature (PLEASE SIGN WITHIN BOX)	Date

REVOCABLE PROXY - CLASS B COMMON STOCK

PHC, INC.

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

2010 ANNUAL MEETING OF STOCKHOLDERS

The undersigned stockholder of PHC, Inc., a Massachusetts corporation, (the “Company”) hereby acknowledges receipt of the Notice of 2010 Annual Meeting of Stockholders and Annual Report on Form 10-K for fiscal year ended June 30, 2010 and hereby appoints Bruce A. Shear and Paula C. Wurts, and both of them, as proxies, with full power to each of substitution, and hereby authorizes either of them to represent and to vote, as designated on the reverse side, all the shares of Class B Common Stock of the Company held of record by the undersigned on October 18, 2010 at the Annual Meeting of Stockholders to be held at 2:00 p.m. (Boston time), on December 16, 2010 at the Corporate offices of PHC, Inc., 200 Lake Street, Suite 102, Peabody, Massachusetts 01960, and at any adjournments or postponements thereof. The undersigned stockholder hereby revokes any proxy or proxies heretofore given.

	Address Changes/Comments __________________________________________________________
	________________________________________________________
	_______________________________________________________________

(If you noted any Address Changes/Comments above, please mark corresponding box on the reverse side).

(Continued And To Be Signed And Dated On Reverse Side)

(BACK)

PHC, INC.

200 LAKE STREET

SUITE 102

PEABODY, MA 01960

VOTE BY INTERNET – WWW.PROXYVOTE.COM

ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS

VOTE BY PHONE – 1-800-690-6903

VOTE BY MAIL

Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.

TO VOTE, mark blocks below in blue or black ink as follows: Example ■ KEEP THIS PORTION FOR YOUR RECORDS

-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. DETACH AND RETURN THIS PORTION ONLY

PHC, INC.
FORM OF PROXY FOR CLASS B COMMON STOCK STOCKHOLDERS	For	Withhold	For All
FORM OF PROXY FOR CLASS B COMMON STOCK STOCKHOLDERS	All	All	Except	To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the Number(s) of the Nominee on the line below.
Vote on Directors
	□	□	□
1. To elect Bruce A. Shear, William F. Grieco, David E. Dangerfield and Douglas J. Smith as the Class B Directors of the Company, each to hold the office until the next annual meeting following his election

				_________________________________________________
Nominees:

01) Bruce A. Shear
02) William F. Grieco
03) David E. Dangerfield
04) Douglas J. Smith
Vote on Proposal
				FOR	AGAINST	ABSTAIN
2. To consider and vote upon a proposed amendment to increase the number of shares of Class A Common Stock available for issuance under the 2004 Non-Employee Director Stock Option Plan from 350,000 to 950,000 shares				□	□	□
3. To consider and vote upon a proposed amendment to increase the number of shares of Class A Common Stock available for issuance under the 2003 Stock Purchase and Option Plan from 1,900,000 to 2,400,000 shares				□	□	□
4. To ratify the selection by the Board of Directors of BDO USA, LLP as the Company’s independent registered public accounting firm for the 2011 fiscal year				□	□	□

In their discretion, the Proxies are authorized to vote upon such other matters as may properly come before the meeting or any adjournment or postponement thereof.

PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD USING THE ENCLOSED ENVELOPE.

Please indicate if you plan to attend this meeting □ □

Yes No

For address changes and/or comments, please check this box and □

write them on the back where indicated

_____________________	_____		____________________	_____
Signature (PLEASE SIGN WITHIN BOX)	Date		Signature (PLEASE SIGN WITHIN BOX)	Date

-----END PRIVACY-ENHANCED MESSAGE-----

	Name and Address	Amount and Nature	Percent of
Title of Class	of Beneficial Owner	of Beneficial Ownership (11)	Class
Class A Common Stock	Marathon Capital Mgmt, LLC 4 North Park Drive, Suite 106 Hunt Valley, MD 21030	1,793,900	9.6%
	Camden Partners Capital Management LLC 500 East Pratt Street, Suite 1200 Baltimore, MD 21202	1,365,428	7.3%
	RENN Capital Group 8080 N. Central Expy, Suite 210 LB 59 Dallas, TX 75206	1,049,900	5.6%

		Amount and Nature	Percent of
Title of Class	Name of Beneficial Owner	of Beneficial Ownership (11)	Class
Class A Common Stock	Bruce A. Shear	727,495(1)	3.9%
	Robert H. Boswell	266,682(2)	1.4%
	Paula C. Wurts	217,816(3)	1.2%
	Howard W. Phillips	238,750(4)	1.3%
	Donald E. Robar	206,667(5)	1.1%
	William F. Grieco	302,000(6)	1.6%
	David E. Dangerfield	122,440(7)	*
	Douglas J. Smith	--	--
	All Directors and Officers as a Group	2,081,850(8)	10.7%
	(8 persons)
Class B Common Stock (9)	Bruce A. Shear	721,259(10)	93.1%
	All Directors and Officers as a Group	721,259	93.1%
	(8 persons)

	Bruce A. Shear	19.04%
	All Directors and Officers as a Group (8 persons)	24.34%

Name	Age	Position
Robert H. Boswell	62	Senior Vice President
Paula C. Wurts	61	Treasurer, Chief Financial Officer and Clerk

·	Annually, prior to its approval of the annual budget and long-term plan, the Board reviews the potential risks which could negatively impact the proposed budget and plan. This review includes the types of risks, as well as pessimistic and worst case scenarios should the identified risks be realized.
·	Prior to approving any significant investment or divestiture actions by the Company, the Board reviews a proposal identifying the rationale and risks involved in such action.
·	The Board regularly receives written reports covering environmental, legal, and human resources matters from key management personnel directly and through the CEO.
·	The full Board also engages in periodic discussions regarding risks with our Chief Executive Officer, Chief Financial Officer, General Counsel and other company officers as well as outside experts, as it deems appropriate.

			Amount at
Name and position	Multiplier		June 30, 2010

Bruce A. Shear, Chief Executive Officer	2.99	$	1,319,645
Robert H. Boswell, Senior Vice President	2.00		397,490
Paula C. Wurts, Chief Financial Officer	2.00		343,102

Summary Compensation Table
Name and						Options		All Others
Principal Position	Year	Salary		Bonus		Awards (10)		Compensation		Total
		($)		($)		($)		($)		($)
(a)	(b)	(c)		(d)		(f)		(i)		(j)

Bruce A. Shear	2010	$	468,369	$	49,000	$	17,199	$	22,719 (1)	$	557,287
President and Chief	2009	$	453,846	$	--	$	42,648	$	13,685 (2)	$	510,179
Executive Officer	2008	$	470,077	$	60,000	$	69,300	$	24,312 (3)	$	623,689

Robert H. Boswell	2010	$	208,385	$	17,000	$	14,332	$	14,466 (4)	$	254,183
Senior Vice President	2009	$	201,923	$	--	$	15,284	$	14,001 (5)	$	231,208
	2008	$	210,000	$	26,000	$	34,650	$	14,898 (6)	$	285,548

Paula C. Wurts	2010	$	179,608	$	17,000	$	14,332	$	13,662 (7)	$	224,602
Chief Financial Officer,	2009	$	174,039	$	--	$	15,284	$	13,268 (8)	$	202,591
Treasurer and Clerk	2008	$	181,000	$	26,000	$	34,650	$	13,503 (9)	$	255,153

DIRECTOR COMPENSATION
	Fees Earned or				All Other
Name	Paid in Cash		Option Awards		Compensation		Total
	($)		($)		($)		($)
(a)	(b)		(d)(1)		(g)		(h)
Donald Robar	$	26,825	$	15,526	$	--	$	42,351
William Grieco		26,825		15,526		--		42,351
David Dangerfield		26,825		15,526		--		42,351
Douglas J. Smith		7,500		--		--		7,500
Howard W. Phillips (2)		--		17,511		30,031		47,542

		GRANTS OF PLAN-BASED AWARDS

			All Other Option
			Awards Number of			Grant Date Fair
			Securities	Exercise or Base		Value of Stock
			Underlying	Price of Option		and Option
Name	Grant Date		Options	Awards		Awards
			(#)	($/Share)*
(a)	(b)		(j)	(k)		(l)

Bruce A. Shear	12/14/2009		15,000	$	1.08	$	8,599
	12/14/2009		15,000	$	1.08	$	8,599

Robert H. Boswell	12/14/2009		25,000	$	1.08	$	14,332

Paula C. Wurts	12/14/2009		25,000	$	1.08	$	14,332

		December 14, 2009
	Risk free interest rate	2.30%
	Expected dividend yield	--
	Expected lives	5
	Expected volatility	60.66%

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
	Number of	Number of
	Securities	Securities
	Underlying	Underlying	Option		Option
	Unexercised	Unexercised	Exercise		Expiration
Name	Options	Options	Price		Date
	(#)	(#)	($)
	Exercisable	Unexercisable
(a)	(b)	(c)	(e)		(f)
Bruce A. Shear	15,000 75,000 15,000 15,000 11,250 15,000 15,000 50,000 10,000 3,750 3,750	-- -- -- -- 3,750 (1) 5,000 (2) 5,000 (3) -- 10,000 (4) 11,250 (5) 11,250 (5)	$	2.68 2.68 2.20 2.06 2.95 2.90 2.75 1.25 1.20 1.08 1.08	09/20/2010 09/20/2010 05/22/2011 10/14/2012 10/31/2012 11/14/2012 02/18/2013 11/28/2013 06/15/2014 12/14/2014 12/14/2014
Robert H. Boswell	20,000 1,250 7,500 7,500 5,625 7,500 7,500 15,000 5,000 6,250	-- -- -- -- 1,875(1) 2,500(2) 2,500 (3) -- 5,000 (4) 18,750 (5)		2.73 1.95 2.20 2.95 2.06 2.90 2.75 1.25 1.20 1.08	09/22/2010 02/16/2011 05/22/2011 10/14/2012 10/31/2012 11/14/2012 02/18/2013 11/28/2013 06/15/2014 12/14/2014
Paula C. Wurts	20,000 7,500 7,500 5,625 7,500 7,500 15,000 5,000 6,250	-- -- -- 1,875(1) 2,500(2) 2,500 (3) -- 5,000(4) 18,750 (5)		2.73 2.20 2.95 2.06 2.90 2.75 1.25 1.20 1.08	09/22/2010 05/22/2011 10/14/2012 10/31/2012 11/14/2012 02/18/2013 11/28/2013 06/15/2014 12/14/2014